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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Cost of Equity Capital-Use the following information to estimate the Venture Banc investors’ target rate of return:
|
 |
RETURN |
|
RATE COMPONENT |
COMPONENT |
|
Liquidity premium |
5% |
|
Risk-free rate |
6% |
|
Advisory premium |
9% |
|
Market risk premium |
7.5% |
|
Hubris projection premium |
15% |
A. Venture Banc uses a systematic risk measure of 2.0. Based on the information shown, estimate Venture Banc’s investment risk premium. Then estimate the cost of equity capital for Venture Banc.
B. Determine the rate components and their returns that a venture investor like Venture Banc would require to be covered beyond a traditional cost-of-equity estimate.
C. What overall venture investment discount rate would be used by Venture Banc?
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